"Fisher Dynamics" in US Household Debt, 1929-2011

The evolution of debt-income ratios over time depends on income growth, inflation, and interest rates, independent of any changes in borrowing. We examine the effect of these "Fisher dynamics" on household debt-income ratios in the United States over the period 1929–2011. Adapting a standard decomposition of public debt to household sector debt, we show that these factors explain, in accounting terms, a large fraction of the changes in household debt-income ratios observed historically. More recently, debt defaults have also been important. Changes in household debt-income ratios over time cannot be straightforwardly interpreted as reflecting shifts in the supply and demand of household credit.